Powell's first congressional interrogation as Fed chair was the focal point in global markets on a mixed day for global equities.

US stocks have been volatile in recent weeks, falling sharply in early February on inflation worries, but regaining some ground more recently, including strong performances in the prior two sessions.

But US stocks stumbled into negative territory midway through Powell's testimony.

Powell said the US economic outlook has strengthened since December, an appraisal that markets took as a sign the Fed could accelerate the pace of monetary tightening, with four interest rate hikes in 2018 rather than the three that were expected.

Powell's highly optimistic outlook "has come about after the Fed called for three 2018 rate hikes in December," said James Chen on Forex.com.

With his bullish comments, "Powell made a not-so-subtle implication that the pace of interest rate increases may potentially be adjusted higher, though he refused to 'pre-judge' Fed officials' collective rate forecasts."

The yield on the 10-year US Treasury bond, a proxy for interest rates, jumped during the question and answer period, weighing on stocks.

The broad-based S&P 500 lost 1.3 percent. The dollar also pushed higher against the euro and other currencies.

"We still have that same haze of concerns about rising interest rates and inflation," said Art Hogan, chief market strategist at Wunderlich Securities. "Those boogeymen are still with us today."

Equity markets in Paris, London and Frankfurt fell modestly. The Nikkei in Japan added 1.1 percent, riding the momentum of Monday's US equity gains.

SKY BIDDING WAR?

In London, star performer Sky rocketed more than 20 percent higher to £13.31 on the prospect of a bidding war between Comcast and Rupert Murdoch's 21st Century Fox.

Comcast has outgunned Murdoch's entertainment giant with an all-cash offer of £12.50 per share for Sky, or more than £22 billion ($31 billion, 25 billion euros).

That is substantially more than the £10.75 per share or £11.4 billion that Fox has offered for the 61 percent of Sky it does not already own.

Comcast slumped 7.4 percent, while Fox shed 3.0 percent.

Disney, which had been in line to become the ultimate owner of the Sky assets through a deal with Fox, shed 4.5 percent amid the prospects of a bidding war.